Daily Briefing

US Dollar Strength Pulls Back, EUR/USD Bounces From Yearly Lows

Price action and Macro.

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Talking Points:

- The US Dollar is pulling back after setting another fresh yearly high yesterday morning. Prices have moved back to the Fibonacci level at 96.47, and we’ve seen a bit of short-term support build at prior resistance. The prior swing-low was set earlier this week at 96.17, and as long as price action remains above this level, bullish strategies can remain attractive around the US Dollar.

- Pullbacks are showing across major currency pairs, with EUR/USD showing the potential for short-term strength while GBP/USD is catching a bounce on a Fibonacci retracement taken from the ‘Brexit move’ in the pair. AUD/USD has run into a key zone of confluent Fibonacci support around .7200. This is the same area that turned around bearish advances twice in 2016, and we’re seeing support set in over the past 24 hours after this level came into play again.

- DailyFX Forecasts on a variety of currencies such as the US Dollar or the Euro are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.

Do you want to see how retail traders are currently trading the US Dollar? Check out our IG Client Sentiment Indicator.

US Dollar Strength Begins to Pullback

The bullish theme in the US Dollar perched up to new highs yesterday morning around the open of the US session. But prices soon started to pullback and that theme has lasted into this morning, so not quite 24 hours yet. But – prices in DXY are testing an area of potential support taken from prior resistance, which came-in at the 23.6% Fibonacci retracement of the 2011-2017 major move.

US Dollar Four-Hour Price Chart: Attempting to Hold Higher-Low Support at Prior Fibonacci Resistance

US Dollar Four Hour Price Chart

Chart prepared by James Stanley

This level of 96.47 is a key one, as this is the 23.6% level of the same study that helped the US Dollar to find its low in February of this year. The price of 88.26 is the 50% retracement of the 2011-2017 major move, and this level helped the Dollar to turn-around in the middle of Q1

US Dollar Weekly Price Chart

us dollar weekly price chart

Chart prepared by James Stanley

EUR/USD Bounces From Fresh Yearly Lows

A key driver to that topside move in the Greenback has been a deeper breakdown in EUR/USD. The pair plunged through the 1.1500 level last week as worries were heating up around contagion in European banks from the situation that’s still developing in Turkey. This has pushed EUR/USD down below 1.1300, albeit temporarily, before a bit of buyer support came-in to perch prices higher.

Yesterday produced a Doji as sellers were outnumbered after testing below 1.1300, and this opens the possibility of a deeper retracement after the bearish extension that showed-up to start this week. The resistance levels that we looked at in our FX Setups for this Week could remain of interest for those looking at bearish continuation in the pair.

EUR/USD Daily Price Chart: Yesterday’s Doji Leads to Today’s Extension in Bounce

EUR/USD Daily Price Chart

Chart prepared by James Stanley

On the hourly chart, we can see where buyers have come in to offer a bit of short-term support around prior resistance, and this helps to keep the door open for deeper retracement potential.

EUR/USD Hourly Price Chart

EUR/USD eurusd hourly price chart

Chart prepared by James Stanley

Cable Runs into 23.6% Support After April’s 78.6% Resistance

Another longer-term Fibonacci level has come into play in GBP/USD, and this is the 23.6% marker from the ‘Brexit move’ that took place in the pair in 2016.

GBP/USD Weekly Price Chart: Fibonacci Support at 23.6% Retracement of the ‘Brexit Move’

gbpusd gbp/usd weekly price chart

Chart prepared by James Stanley

On a shorter-term basis, the bounce that we’ve seen over the past 24 hours hasn’t been as convincing as what was seen above in EUR/USD. Prices have not been able to perch up to a short-term higher-high here and thus, we don’t really have a higher-low to work with after prices dug into that Fibonacci support early yesterday morning.

GBP/USD Hourly Price Chart: Sellers Remain Active After Fibonacci Support Bounce

gbpusd gbp/usd hourly price chart

Chart prepared by James Stanley

AUD/USD Bounces From Confluent Fibonacci Support

The area around the price of .7200 has a couple of key areas of support, as the 76.4% retracement of the 2008-2011 major move resides at .7205 while the 61.8% retracement of the 2001-2011 major move is at .7185. Perhaps more importantly, this zone helped to provide reversal bounces on two separate occasions in 2016, first in May and then again in December. That second test seemed to really bring out the bulls as prices continued higher for the next year and two months before topping out at 81.25.

Price action in 2018 has brought a far different tone, however, and prices have been on a bee-line lower for much of the period. Yesterday saw prices dig-in a bit of support at this same level, and prices have been bouncing ever since.

audusd aud/usd weekly price chart

Chart prepared by James Stanley

On a shorter-term basis, there are two potential areas of resistance that can be worked with in the pair. We had a prior swing of support around .7325, and that had held from late-July up until Friday’s down-side break; and if that doesn’t come into play, there’s a bearish trend-line that current projects around the .7400 handle. Each of these areas keeps the door open for bearish continuation in the pair, and stops can be investigated above the psychological level of .7500.

AUD/USD Daily Price Chart: Potential Resistance for Bearish Continuation

audusd aud/usd daily price chart

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q1 have a section for each major currency, and we also offer a plethora of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers a plethora of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

--- Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX




US Dollar Pullback Driven by Chinese Yuan, Turkish Lira Strength

News events, market reactions, and macro trends.

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Talking Points:

- USD/TRY continues to pullback, largely driven by changes in government policy rather than market participants deeming that the US-Turkish diplomatic fallout is on the path towards resolution.

- With US-China trade talks set to resume, USD/CNH has been dragged lower as well, helping global risk appetite recover.

- Retail traders remain net-long EUR/USD and GBP/USD, suggesting any rallies should be faded.

See our longer-term forecasts for the US Dollar, Euro, British Pound and more with the DailyFX Trading Guides

The US Dollar (via the DXY Index) is falling for the first time since August 8 as emerging market currencies like the Chinese Yuan and Turkish Lira continue to recover ground. US equity markets have opened higher, and US yields have risen as traders have turned away from the safety of both the US Dollar and US Treasuries, if only temporarily.

While the reversals seen in USD/CNH and USD/TRY are proving to bolster risk appetite, there is the question about how viable these turns in sentiment are. The most legitimate positive development has been the restarting of trade talks between China and the US, in an effort to prevent the trade war from spiraling further out of control.

But the news of trade talks restarting are being discussed with a large grain of salt, insofar as expectations are extremely low for any sort of progress being made to end the US-China trade war. Instead, the pullback in USD/CNH has been largely driven by a change in Chinese policy that has made shorting the offshore yuan more expensive.

If this sounds familiar, it should: yesterday, we noted how Turkey was doing something similar: "the government's decision to limit the total amount of foreign currency and lira swap and swap-like transactions to no more than 25% of banks’ legal shareholder equity, is essentially a measure designed to make it harder for foreigners to short the Lira."

Accordingly, both the USD/CNH and USD/TRY pullbacks, while good for risk appetite in the short-term, are being driven by measures to mask the underlying causes of the issues. If market participants were truly on board with the idea of resolution to both the Chinese and Turkish problems materializing in the short-term, we'd be seeing bigger reversals in pairs like AUD/USD, EUR/USD, and USD/ZAR.

DXY Index Price Chart: Daily Timeframe (June 2017 to August 2018) (Chart 1)

US Dollar Pullback Driven by Chinese Yuan, Turkish Lira Strength

All of this leaves the US Dollar (via the DXY Index) in the fundamental position of being eyed as a 'buy on pullbacks' candidate. The technical structure of the DXY Index remains bullish, with price continuing to hold above its daily 8-, 13-, and 21-EMA envelope. Likewise, both daily MACD and Slow Stochastics continue to trend higher in bullish territory.

In terms of support for the recent breakout, we're keeping an eye on the daily 13-EMA, which price hasn't closed below in the month of August so far; a daily close below said moving average would suggest the impulse that has carried the DXY Index higher the past few weeks is exhausted.

Read more: DXY Index Extends Gains as EM Pressure Continues to Build

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX




Yen and Dollar Fall on US, China Trade War Breakthrough Prospects

Fundamental analysis, economic and market themes.

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TALKING POINTS – YEN, US DOLLAR, CHINA, AUSSIE DOLLAR, STOCKS, TURKEY

  • Yen, Franc and US Dollar drop amid broad sentiment recovery
  • Hopes for US, China trade war de-escalation stoking optimism
  • Aussie and New Zealand Dollars, Euro emerge as outperformers

The markets’ mood brightened in Asia Pacific trade as traders battered by turmoil in emerging market assets were offered a sliver of hope for de-escalation in the trade war between the US and China. That came by way of news that the latter country’s Vice Commerce Minister will travel to Washington to meet a high-level delegation for talks in late August.

Price action was the picture of risk-on recovery. Currencies that rose on the back of deteriorating sentiment – the Japanese Yen, Swiss Franc and the US Dollar – turned lower in tandem. Meanwhile, standby pro-risk alternatives like the Australian and New Zealand Dollars outperformed. Even the Euro, which has been severely pressured by worries about Turkish crisis contagion, managed to find a lifeline.

Looking ahead, a modest offering of second-tier European and US economic data releases seems unlikely to push sentiment trends out of the spotlight. FTSE 100 and S&P 500 futures are pointing firmly higher before the opening bells in London and New York, hinting the upbeat tone has scope for follow-through in the hours ahead. Needless to say however, elevated headline sensitivity threatens the durability of any such move.

See our free guide to learn how to use economic news in your trading strategy!

ASIA PACIFIC TRADING SESSION

Yen and Dollar Fall on US, China Trade War Breakthrough Prospects

EUROPEAN TRADING SESSION

Yen and Dollar Fall on US, China Trade War Breakthrough Prospects

** All times listed in GMT. See the full economic calendar here.

FX TRADING RESOURCES

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter




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